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Selling 'High Risk' Part of an Oncology Practice Can Increase Financial Stability

Selling 'High Risk' Part of an Oncology Practice Can Increase Financial Stability

February 01, 1996

MARINA DEL REY, Calif--Comparing the technical services portion
of an oncology practice to a car that has been driven 25,000 miles,
Dean H. Gesme, Jr., MD, managing partner of Iowa Cancer Care,
P.L.C., said that he and his partners decided to spin off that
part of their Cedar Rapids practice while it still had a high
market value.

Chemo Not a Source of Revenue

"When we analyzed laboratory and chemotherapy revenues, drug
prices, and reimbursement issues--and made suppositions based
on historical fact and intent of government--we saw declining
revenues and significantly increasing expenses. For example, using
our financial model, in 3.5 years, chemotherapy was no longer
a source of revenue but an expense to our practice," he said
at the annual conference of the Association of Community Cancer
Centers (ACCC).

The issues of financial stability and revenue control were key
to the decision process. Dr. Gesme found that the majority of
the practice's cash flow was not based on time and services charges,
elements directly under physician control. Instead, it was based
on laboratory and chemotherapy revenue--more under the control
of those who set reimbursement rates and, therefore, deemed relatively
risky sources of revenue.

So they sold those "high risk" parts of the practice
to Physician Reliance Network, Inc. (PRN), a Texas-based practice
management group, leaving a separate and distinct physicians'
organization that is responsible for all clinical matters. Now,
the revenue stream for the technical services they provide as
medical oncologists goes to PRN.

In turn, for a fee, PRN furnishes the entire management operations
for the newly formed group, Oncology Associates of Cedar Rapids.
This includes all elements (eg, personnel, office space, equipment,
and financial services) except physician services.

In Dr. Gesme's opinion, successful practice transactions depend
on a physician's ability to develop a strategic vision of the
future--a way of thinking he finds uncommon. "Many physicians
rarely think about the future; in fact, they rarely think about
today; they're still trying to get yesterday's records dictated."

But he stressed that such thinking is necessary to decide whether
to maintain the status quo (or, in his used car analogy, drive
that car into the ground) or to become proactive and make a change
now. "This was a fairly conservative move and offered us
greater financial stability," Dr. Gesme said.